<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC. Two World Trade Center, New York,
LETTER TO THE SHAREHOLDERS New York 10048
February 28, 1997
DEAR SHAREHOLDER:
Continuing its strong performance of the first half of 1996, the high-yield
market posted solid returns during the past six months and outperformed most
of the other fixed-income markets. With the economy rebounding and with
corporate earnings holding up well, the market was able to offset what was a
relatively weak fixed-income environment.
A year ago, investors were anticipating a recession due to concern over a
then-weakening economy. U.S. Treasury yields were lower than today's levels,
while yields in the high-yield market were higher. As the year played out, we
saw the economy bounce back, corporate earnings hold up, the equity markets
reach all time highs and recession fears ease. The result was a somewhat
volatile U.S. Treasury market, while the high-yield market held up well given
the stronger-than-expected economy. Although yield spreads narrowed during
the year, many B-rated issues still provide an attractive yield advantage
over U.S. Treasuries (nearly 400 basis points) and trade at or below par.
As Dean Witter High Yield Securities begins the second half of its fiscal
year, we note that a correction is underway across most of the financial
markets, including the high-yield bond sector. On the heels of a credit
tightening by the Federal Reserve Board in late March, considerable
nervousness was evident in both the equity and fixed-income markets.
Speculation as to the timing and impact of any further increases in interest
rates has created uncertainty on the part of many investors. The high-yield
market has felt this weakness as well, as investors discount a future
potential slowing in the economy resulting from today's higher interest
rates.
PERFORMANCE AND PORTFOLIO STRATEGY
Against this backdrop, Dean Witter High Yield Securities produced a total
return of 6.92 percent for the six-month period ended February 28, 1997,
based on its net asset value (NAV) of $6.66 per share. This compares to a
return of 8.74 percent for the Lehman High Yield Index and a return of
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
LETTER TO THE SHAREHOLDERS, continued
8.76 percent for the Lipper High Yield Fund Index during the same period.
Over the past six months, the Fund continued to distribute regular income
dividends at a rate of $0.055 per share per month. For the full six-month
period, the Fund's distributions totaled $0.50 per share, including an extra
income dividend of $0.17 per share paid on December 31, 1996. On February 28,
1997, the Fund's net assets exceeded $472 million.
As the economy continued to expand over the past few years, we have tended to
concentrate on B-rated issues. In a growing economy, one can find
undervalued, "upgrade" candidates in this sector of the market that provide
attractive yields as well as appreciation potential. As such, we continue to
feel that many of these issues are very attractive long-term investments.
However, given a potentially slowing economy down the road, we have begun to
take some defensive steps in the portfolio. Over the past six to nine months,
we have upgraded the portfolio by increasing our allocation to the
higher-quality end of the market (BB-rated issues or higher) from 10 percent
to 25 percent. We also sold many of our heavy cyclical positions and are now
focused mainly on the more predictable recession-resistant or growth sectors
of the economy. In certain of these sectors, such as media and
telecommunications, we expect to see continued consolidation, which should
bode well for most industry participants.
LOOKING AHEAD
Overall, we continue our focus on discounted B-rated investments yielding 10
percent or higher. However, while we are not expecting a recession in 1997,
we have begun to take a more defensive approach in case of any further
economic slowing down the road.
We thank you for your continued support of Dean Witter High Yield Securities
and look forward to continuing to serve your investment needs.
Very truly yours,
/s/ Charles A. Fiumefreddo
- --------------------------
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS February 28, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (92.5%)
Aerospace (1.6%)
$ 8,000 Sabreliner Corp. (Series B) ..................................... 12.50 % 04/15/03 $ 7,760,000
--------------
Automotive (4.5%)
4,000 APS, Inc. ...................................................... 11.875 01/15/06 4,280,000
6,800 Envirotest Systems, Inc. ....................................... 9.125 03/15/01 6,417,500
10,000 Toyota Motor Credit Corp. ...................................... 15.00 09/26/97 10,505,500
--------------
21,203,000
--------------
Broadcast Media (4.0%)
4,000 Adams Outdoor Advertising L.P. .................................. 10.75 03/15/06 4,300,000
7,000 Capstar Broadcasting Partners -144A* ............................ 12.75 ++ 02/01/09 4,060,000
4,000 Paxson Communications Corp. .................................... 11.625 10/01/02 4,290,000
6,000 Spanish Broadcasting System, Inc. .............................. 7.50 06/15/02 6,360,000
--------------
19,010,000
--------------
Business Services (4.6%)
9,052 Anacomp, Inc. .................................................. 13.00 + 06/04/02 9,458,863
12,000 Xerox Credit Corp. ............................................. 15.00 06/10/97 12,292,320
--------------
21,751,183
--------------
Cable & Telecommunications (15.8%)
Adelphia Communications Corp.
7,116 (Series B) ...................................................... 9.50 + 02/15/04 6,439,981
3,500 Adelphia Communications, Inc. -144A* ............................ 9.875 03/01/07 3,408,125
5,000 American Communications Services, Inc. ......................... 13.00 ++ 11/01/05 3,287,500
5,000 American Communications Services, Inc. ......................... 12.75 ++ 04/01/06 3,087,500
12,000 AT&T Capital Corp. ............................................. 15.00 05/05/97 12,184,920
4,000 Cablevision Systems Corp. ...................................... 10.50 05/15/16 4,210,000
5,000 Charter Communication South East L.P. (Series B) ................ 11.25 03/15/06 5,375,000
10,627 Falcon Holdings Group L.P. (Series B) ........................... 11.00 + 09/15/03 9,617,054
5,000 Frontiervision, Inc. ........................................... 11.00 10/15/06 5,225,000
11,000 Hyperion Telecommunication, Inc. (Series B) ..................... 13.00 ++ 04/15/03 6,407,500
13,400 In-Flight Phone Corp. (Series B)(a) ............................. 14.00 ++ 05/15/02 1,005,000
4,000 IXC Communications, Inc. (Series B) ............................. 12.50 10/01/05 4,530,000
5,050 Peoples Telephone Co., Inc. .................................... 12.25 07/15/02 5,390,875
4,000 Rifkin Acquisition Partners L.P. ............................... 11.125 01/15/06 4,235,000
--------------
74,403,455
--------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS February 28, 1997 (unaudited) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------
Computer Equipment (3.1%)
$ 5,000 Unisys Corp. ................................................... 15.00 % 07/01/97 $ 5,231,250
8,000 Unisys Corp. (Conv.) ............................................ 8.25 03/15/06 9,620,000
--------------
14,851,250
--------------
Consumer Products (2.2%)
5,500 J.B. Williams Holdings, Inc. ................................... 12.00 03/01/04 5,692,500
4,500 Renaissance Cosmetics, Inc. -144A* .............................. 11.75 02/15/04 4,640,625
--------------
10,333,125
--------------
Containers (2.2%)
5,000 Mail-Well Corp. ................................................ 10.50 02/15/04 5,150,000
5,000 Packaging Resources, Inc. ...................................... 11.625 05/01/03 5,318,750
--------------
10,468,750
--------------
Electrical & Alarm Systems (2.2%)
11,000 Mosler, Inc. ................................................... 11.00 04/15/03 10,505,000
--------------
Entertainment/Gaming & Lodging (9.3%)
4,000 AMF Group Inc. (Series B) ....................................... 10.875 03/15/06 4,365,000
9,750 Fitzgeralds Gaming Corp. (Units)++ ............................. 13.00 12/31/02 8,531,250
8,000 Lady Luck Gaming Finance Corp. ................................. 11.875 03/01/01 7,870,000
8,000 Motels of America, Inc. (Series B) .............................. 12.00 04/15/04 6,960,000
4,000 Players International, Inc. .................................... 10.875 04/15/05 4,200,000
4,000 Plitt Theaters, Inc. (Canada) ................................... 10.875 06/15/04 4,100,000
4,000 Station Casinos, Inc. .......................................... 9.625 06/01/03 4,060,000
4,000 Stuart Entertainment, Inc. -144A* ............................... 12.50 11/15/04 4,070,000
--------------
44,156,250
--------------
Financial (4.4%)
9,500 General Electric Capital Corp. ................................. 13.50 01/20/98 10,113,795
10,000 Household Finance Corp. ........................................ 15.00 09/25/97 10,505,400
--------------
20,619,195
--------------
Foods & Beverages (7.4%)
9,621 Envirodyne Industries, Inc. .................................... 10.25 12/01/01 9,621,000
4,000 Fleming Companies Inc. ......................................... 10.625 12/15/01 4,225,000
4,000 General Mills, Inc. ............................................ 13.50 01/21/98 4,253,680
42,650 Specialty Foods Acquisition Corp. (Series B) .................... 13.00 ++ 08/15/05 17,060,000
--------------
35,159,680
--------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS February 28, 1997 (unaudited) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------
Healthcare (2.9%)
$11,750 Unilab Corp. ................................................... 11.00 % 04/01/06 $ 8,401,250
5,000 Unison Healthcare Corp. -144A* .................................. 12.25 11/01/06 5,362,500
--------------
13,763,750
--------------
Manufacturing (4.3%)
5,000 Berry Plastics Corp. ........................................... 12.25 04/15/04 5,556,250
4,000 Exide Electronics Group, Inc. (Series B) ........................ 11.50 03/15/06 4,345,000
5,000 International Wire Group, Inc. ................................. 11.75 06/01/05 5,425,000
5,000 Uniroyal Technology Corp. ...................................... 11.75 06/01/03 5,037,500
--------------
20,363,750
--------------
Manufacturing -Diversified (6.5%)
4,000 Foamex L.P. .................................................... 11.875 10/01/04 4,320,000
5,000 Interlake Corp. ................................................ 12.125 03/01/02 5,250,000
5,000 J.B. Poindexter & Co., Inc. .................................... 12.50 05/15/04 5,100,000
6,030 Jordan Industries, Inc. ........................................ 10.375 08/01/03 6,060,150
11,420 Jordan Industries, Inc. ........................................ 11.75 ++ 08/01/05 9,906,900
5,000 Starcraft Industrial Corp. (a) ................................. 16.50 01/15/98 --
--------------
30,637,050
--------------
Oil & Gas (2.1%)
4,000 Petro Stopping Centers L.P. -144A* .............................. 10.50 02/01/07 4,220,000
5,000 TransTexas Gas Corp. ........................................... 11.50 06/15/02 5,562,500
--------------
9,782,500
--------------
Publishing (4.2%)
5,000 Affiliated Newspapers Investments, Inc. ........................ 13.25 ++ 07/01/06 4,250,000
4,000 American Media Operations, Inc. ................................ 11.625 11/15/04 4,350,000
3,000 MDC Communications Corp. ....................................... 10.50 12/01/06 3,172,500
3,000 Petersen Publishing, Inc. -144A* ................................ 11.125 11/15/06 3,262,500
5,000 United States Banknote Corp. ................................... 10.375 06/01/02 5,018,750
--------------
20,053,750
--------------
Restaurants (4.9%)
American Restaurant Group
25,072 Holdings, Inc. ................................................. 14.00 ++ 12/15/05 11,470,440
3,000 Ameriking, Inc. ................................................ 10.75 12/01/06 3,127,500
4,000 Carrols Corp. .................................................. 11.50 08/15/03 4,280,000
4,000 FRD Acquisition Corp. (Series B) ................................ 12.50 07/15/04 4,185,000
--------------
23,062,940
--------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS February 28, 1997 (unaudited) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------
Retail (0.9%)
$10,450 County Seat Stores Co. (b) ...................................... 12.00 % 10/01/02 $ 4,180,000
--------------
Retail -Food Chains (2.1%)
4,000 Jitney-Jungle Stores ............................................ 12.00 03/01/06 4,480,000
5,500 Pathmark Stores, Inc. .......................................... 9.625 05/01/03 5,376,250
--------------
9,856,250
--------------
Textiles (2.4%)
4,000 Reeves Industries, Inc. ........................................ 11.00 07/15/02 3,800,000
8,117 U.S. Leather, Inc. ............................................. 10.25 07/31/03 7,386,470
--------------
11,186,470
--------------
Transportation (0.9%)
4,000 Atlantic Express -144A* ......................................... 10.75 02/01/04 4,120,000
--------------
TOTAL CORPORATE BONDS
(Identified Cost $454,451,511) ......................................................... 437,227,348
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- -----------
<S> <C> <C>
COMMON STOCKS (c)(3.7%)
Automotive (0.0%)
709 Northern Holdings Industrial Corp. (d) ......................... --
--------------
Entertainment/Gaming & Lodging (0.1%)
7,500 Motels of America, Inc. -144A* .................................. 262,500
781,421 Vagabond Inns, Inc. (Class D)(a) ............................... 781
--------------
263,281
--------------
Foods & Beverages (1.0%)
408,055 Seven-Up/RC Bottling Co. Southern California, Inc. (d) ......... 4,539,612
273,750 Specialty Foods Acquisition Corp. -144A* ........................ 273,750
--------------
4,813,362
--------------
Manufacturing -Diversified (2.6%)
451,613 Thermadyne Holdings Corp. (d) .................................. 12,419,359
--------------
Restaurants (0.0%)
26,057 American Restaurant Group Holdings, Inc. -144A* ................. 26,057
--------------
Textiles (0.0%)
12,000 JPS Textile Group, Inc. (Class A) .............................. 120
--------------
TOTAL COMMON STOCKS
(Identified Cost $69,873,804) .................................. 17,522,179
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS February 28, 1997 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCKS (0.4%)
Entertainment/Gaming & Lodging (0.4%)
80,000 Fitzgeralds Gaming Corp. (Units) ++ ............................. $1,830,000
--------------
Oil & Gas Products (0.0%)
113,955 TGX Corp. (Series A)(c)(d) ..................................... 1,140
--------------
TOTAL PREFERRED STOCKS
(Identified Cost $2,830,000) ................................... 1,831,140
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE
- ----------- ---------------------------------------------------------------- ------------ -------------
<S> <C> <C> <C>
WARRANTS (c)(0.1%)
Aerospace (0.0%)
9,000 Sabreliner Corp. -144A* ......................................... 04/15/03 90,000
-------------
Cable & Telecommunications (0.0%)
8,000 Hyperion Telecommunication, Inc. (Series B) -144A* .............. 04/01/01 240,000
-------------
Containers (0.0%)
10,000 Crown Packaging Holdings, Ltd. -144A* ........................... 11/01/03 100
-------------
Entertainment/Gaming & Lodging (0.0%)
5,000 Boomtown, Inc. -144A* ........................................... 11/01/98 --
8,312 Fitzgeralds Gaming Corp. ....................................... 12/19/98 8,397
3,500 Fitzgeralds South Inc. -144A* ................................... 03/15/99 --
-------------
8,397
-------------
Manufacturing (0.1%)
4,000 Exide Electronics Group, Inc. -144A* ............................ 03/15/06 191,000
70,000 Uniroyal Technology Corp. ...................................... 06/01/03 70,000
-------------
261,000
-------------
Retail (0.0%)
10,000 County Seat Holdings Co. ....................................... 10/15/98 100
-------------
TOTAL WARRANTS
(Identified Cost $1,383,529) ................................... 599,597
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS February 28, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS (2.9%)
U.S. GOVERNMENT AGENCY (e) (2.4%)
$11,000 Federal Home Loan Banks
(Amortized Cost $10,996,761) .................................... 5.30% 03/03/97 $ 10,996,761
--------------
REPURCHASE AGREEMENT (0.5%)
2,474 The Bank of New York (dated 02/28/97; proceeds $2,475,352;
collateralized By $461,122 Federal National Mortgage Assoc.
7.36% due 02/07/07
valued at $464,063 and $1,646,467
U.S. Treasury Bond 9.25%
due 02/15/16 valued at $2,059,693)
(Identified Cost $2,474,270) ................................... 5.25 03/03/97 2,474,270
--------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $13,471,031) ............................................ 13,471,031
--------------
TOTAL INVESTMENTS
(Identified Cost $542,009,875)(f) ........................................ 99.6% 470,651,295
OTHER ASSETS IN EXCESS OF LIABILITIES .................................... 0.4 1,916,313
--------------
NET ASSETS ............................................................... 100.0% $472,567,608
========== ==============
</TABLE>
- ------------
* Resale is restricted to qualified institutional investors.
++ Consists of one or more classes of securities traded together as a
unit; bonds or preferred stocks with attached warrants.
+ Payment-in-kind securities.
++ Currently a zero coupon bond and will pay interest at the rate shown
at a future specified date.
(a) Non-income producing security; issuer in bankruptcy.
(b) Non-income producing security; bond in default.
(c) Non-income producing securities.
(d) Acquired through exchange offer.
(e) Security was purchased on a discount basis. The interest rate shown
has been adjusted to reflect a money market equivalent yield.
(f) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$28,233,135 and the aggregate gross unrealized depreciation is
$99,591,715, resulting in net unrealized depreciation of $71,358,580.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $542,009,875).......... $ 470,651,295
Receivable for:
Interest............................... 10,960,585
Investments sold....................... 3,176,250
Capital stock sold..................... 514,802
Prepaid expenses and other assets ....... 66,220
---------------
TOTAL ASSETS........................... 485,369,152
---------------
LIABILITIES:
Payable for:
Investments purchased ................. 11,341,083
Dividends to shareholders ............. 908,454
Capital stock repurchased ............. 220,229
Investment management fee ............. 180,368
Accrued expenses and other payables .... 151,410
---------------
TOTAL LIABILITIES...................... 12,801,544
---------------
NET ASSETS:
Paid-in-capital ......................... 1,543,860,051
Net unrealized depreciation.............. (71,358,580)
Accumulated undistributed net investment
income ................................. 1,931,583
Accumulated net realized loss............ (1,001,865,446)
---------------
NET ASSETS ............................ $ 472,567,608
===============
NET ASSET VALUE PER SHARE,
70,909,927 shares outstanding
(400,000,000 shares authorized of $.01
par value) ............................. $6.66
===============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.82% of net
asset value)*........................... $7.05
===============
</TABLE>
- ------------
* On sales of $25,000 or more, the offering price is reduced.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ....................... $ 27,883,411
--------------
EXPENSES
Investment management fee.............. 1,160,316
Transfer agent fees and expenses ...... 266,965
Professional fees ..................... 47,250
Shareholder reports and notices ...... 32,044
Custodian fees ........................ 23,006
Registration fees ..................... 18,338
Directors' fees and expenses .......... 6,202
Other.................................. 4,590
--------------
TOTAL EXPENSES ...................... 1,558,711
--------------
NET INVESTMENT INCOME ............... 26,324,700
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss ..................... (48,247,775)
Net change in unrealized depreciation 53,247,857
--------------
NET GAIN ............................ 5,000,082
--------------
NET INCREASE .......................... $ 31,324,782
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
FEBRUARY 28, 1997 AUGUST 31, 1996
- -------------------------------------------------- ----------------- ---------------
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ............................. $ 26,324,700 $ 55,722,131
Net realized loss ................................. (48,247,775) (17,329,860)
Net change in unrealized depreciation ............. 53,247,857 9,730,771
----------------- ---------------
NET INCREASE .................................... 31,324,782 48,123,042
Dividends from net investment income............... (34,730,405) (51,517,938)
Net increase from capital stock transactions ..... 15,770,392 8,152,392
----------------- ---------------
NET INCREASE .................................... 12,364,769 4,757,496
NET ASSETS:
Beginning of period................................ 460,202,839 455,445,343
----------------- ---------------
END OF PERIOD
(Including undistributed net investment income
of $1,931,583 and $10,337,288, respectively) .... $472,567,608 $460,202,839
================= ===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS February 28, 1997 (unaudited)
1. Organization and Accounting Policies
Dean Witter High Yield Securities Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund's primary investment objective is to
earn a high level of current income and, as a secondary objective, capital
appreciation, but only when consistent with its primary objective. The Fund
was incorporated in Maryland on June 14, 1979 and commenced operations on
September 26, 1979.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at
its latest sale price on that exchange prior to the time when assets are
valued; if there were no sales that day, the security is valued at the latest
bid price (in cases where securities are traded on more than one exchange,
the securities are valued on the exchange designated as the primary market
pursuant to procedures adopted by the Directors); (2) all other portfolio
securities for which over-the-counter market quotations are readily available
are valued at the latest available bid price prior to the time of valuation;
(3) when market quotations are not readily available, including circumstances
under which it is determined by Dean Witter InterCapital Inc. (the
"Investment Manager") that sale or bid prices are not reflective of a
security's market value, portfolio securities are valued at their fair value
as determined in good faith under procedures established by and under the
general supervision of the Directors (valuation of debt securities for which
market quotations are not readily available may be based upon current market
prices of securities which are comparable in coupon, rating and maturity or
an appropriate matrix utilizing similar factors); (4) certain portfolio
securities may be valued by an outside pricing service approved by the
Directors. The pricing service may utilize a matrix system incorporating
security quality, maturity and coupon as the evaluation model parameters,
and/or research and evaluations by its staff, including review of
broker-dealer market price quotations, if available, in determining what it
believes is the fair valuation of the portfolio securities valued by such
pricing service; and (5) short-term debt securities having a maturity date of
more than sixty days at time of purchase are valued on a mark-to-market basis
until sixty days prior to maturity and thereafter at amortized cost based on
their value on the 61st day. Short-term debt securities having a maturity
date of sixty days or less at the time of purchase are valued at amortized
cost.
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS February 28, 1997 (unaudited) continued
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. Dividend income and other distributions are recorded on the
ex-dividend date. Discounts are accreted over the life of the respective
securities. Interest income is accrued daily except where collection is not
expected.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends
and distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are reported
as dividends in excess of net investment income or distributions in excess of
net realized capital gains. To the extent they exceed net investment income
and net realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, calculated daily and payable monthly, by applying
the following annual rates to the net assets of the Fund determined as of the
close of each business day: 0.50% to the portion of daily net assets not
exceeding $500 million; 0.425% to the portion of daily net assets exceeding
$500 million but not exceeding $750 million; 0.375% to the portion of daily
net assets exceeding $750 million but not exceeding $1 billion; 0.35% to the
portion of daily net assets exceeding $1 billion but not exceeding $2
billion; 0.325% to the portion of daily net assets exceeding $2 billion but
not exceeding $3 billion; and 0.30% to the portion of daily net assets
exceeding $3 billion.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS February 28, 1997 (unaudited) continued
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services,
heat, light, power and other utilities provided to the Fund.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the six months ended February 28, 1997,
aggregated $237,747,854 and $220,427,940, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Fund's transfer agent. At February 28, 1997, the Fund had transfer agent fees
and expenses payable of approximately $56,000.
The Fund has an unfunded noncontributory defined benefit pension plan
covering all independent Directors of the Fund who will have served as
independent Directors for at least five years at the time of retirement.
Benefits under this plan are based on years of service and compensation
during the last five years of service. Aggregate pension costs for the six
months ended February 28, 1997 included in Directors' fees and expenses in
the Statement of Operations amounted to $635. At February 28, 1997, the Fund
had an accrued pension liability of $48,911 which is included in accrued
expenses in the Statement of Assets and Liabilities.
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Distributor has
informed the Fund that for the six months ended February 28, 1997, it
received approximately $963,000 in commissions from the sale of shares of the
Fund's capital stock. Such commissions are deducted from the proceeds of the
capital stock shares and are not an expense of the Fund.
4. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
FEBRUARY 28, 1997 AUGUST 31, 1996
----------------------------- ------------------------------
(UNAUDITED)
SHARES AMOUNT SHARES AMOUNT
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Sold 4,443,983 $ 29,891,249 7,479,221 $ 50,396,628
Reinvestment of dividends 2,738,144 18,229,841 3,993,442 26,742,126
------------- -------------- -------------- --------------
7,182,127 48,121,090 11,472,663 77,138,754
Repurchased (4,814,204) (32,350,698) (10,236,571) (68,986,362)
------------- -------------- -------------- --------------
Net increase 2,367,923 $ 15,770,392 1,236,092 $ 8,152,392
============= ============== ============== ==============
</TABLE>
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS February 28, 1997 (unaudited) continued
5. FEDERAL INCOME TAX STATUS
At August 31, 1996, the Fund had an approximate net capital loss carryover,
which may be used to offset future capital gains to the extent provided by
regulations, which is available through August 31 in the following years:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
- ------------------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003 2004 TOTAL
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$94,246 $82,210 $292,752 $182,732 $45,208 $166,406 $50,598 $23,294 $937,446
========== ========== ========== ========== ========== ========== ========== ========== =========
</TABLE>
Capital losses incurred after October 31 ("post-October" losses) within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $13,146,000 during fiscal 1996.
At August 31, 1996, the Fund had temporary book/tax differences primarily
attributable to post-October losses, capital loss deferrals on wash sales and
dividends payable.
<PAGE>
DEAN WITTER HIGH YIELD SECURITIES INC.
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of capital stock outstanding
throughout each period:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR ENDED AUGUST 31
MONTHS ENDED ------------------------------------------------
FEBRUARY 28, 1997 1996 1995 1994 1993 1992
- ------------------------------------------ ----------------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $ 6.71 $ 6.77 $ 6.83 $ 7.58 $ 7.23 $ 5.92
------ ------ ------ ------ ------ ------
Net investment income ..................... 0.38 0.83 0.80 0.79 0.89 0.95
Net realized and unrealized gain (loss) .. 0.07 (0.12) (0.06) (0.68) 0.54 1.04
------ ------ ------ ------ ------ ------
Total from investment operations .......... 0.45 0.71 0.74 0.11 1.43 1.99
------ ------ ------ ------ ------ ------
Less dividends from net investment income (0.50) (0.77) (0.80) (0.86) (1.08) (0.68)
------ ------ ------ ------ ------ ------
Net asset value, end of period ............ $ 6.66 $ 6.71 $ 6.77 $ 6.83 $ 7.58 $ 7.23
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN+ .................. 6.92%(1) 11.07% 11.98% 0.93% 22.29% 35.46%
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 0.67%(2) 0.66% 0.79% 0.69% 0.67% 0.77%
Net investment income ..................... 11.34%(2) 12.27% 12.06% 10.40% 12.14% 13.96%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions ... $ 473 $ 460 $ 455 $ 478 $ 540 $ 512
Portfolio turnover rate ................... 50%(1) 49% 74% 127% 173% 113 %
</TABLE>
- ------------
+ Does not reflect the deduction of sales load. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
BOARD OF DIRECTORS
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Peter M. Avelar
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust Company
Harborside Financial Center -Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
The financial statements included herein have been taken from the records of
the Fund without examination by the independent accountants and accordingly
they do not express an opinion thereon.
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and
directors, fees, expenses and other pertinent information, please see the
prospectus of the Fund.
This report is not authorized for distribution to prospective investors in
the Fund unless preceded or accompanied by an effective prospectus.
Dean Witter
High Yield
Securities
Semiannual Report
February 28, 1997
